Where To Go With Your Money.doc

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1、Where To Go With Your MoneySavings deposits, no longer sacrosanct in the worlds banks and free of confiscatory taxation, suggest stuffing your mattress makes immediate sense but isnt the long term solution. Actually, in the U.S. alone, there are trillions of invested assets poorly structured for per

2、formance.Fixed-income holdings by private pension funds are way above trend, near 40 percent of assets. Twenty percent is a more rational number. I figure some $1 trillion could flow into equities over the next year or so from bonds. Individuals, with $15 trillion in equities were as high as 60 perc

3、ent of assets during the Internet craziness of 2000. I see 55 percent as the logical number going forward; not the present 45 percent. This swing flows another $1.5 trillion into the stock market. Serious money.My case is the Big Board stands reasonably priced, and no alternative investments make mu

4、ch sense today. In 2009, for the first time in my life, I bought municipal bonds and preferred stocks, mainly bank preferreds then selling on parity with their common stock. Of late, theyve taken the kick out of the booze.Lest we forget, you couldve bought $25 par bank preferreds selling in single d

5、igits. High-yield bonds, BBB with 10-year duration, sold to yield 9 percent. Currently, their yield to maturity or first call is nearer 2 percent. There are no 7 percent preferreds around. Theyve been called, and replaced with 5 percent paper even for low-quality credits, mainly in leveraged financi

6、al houses like Schwab, Prudential and Citigroup.I dont want to leave out contemporary art which has sustained a great bull run these past 5 to 10 years. Not just trophy art collected by Russian oligarchs. Warhol, Francis Bacon, Richter, Koons, Franz Klein even Picasso are best left to these maniacs

7、with no sense of connoisseurship. But, canvases at the $500, 000 price range now go for millions. Im thinking of Joan Mitchell, Pierre Soulages, Jenny Saville and Cecily Brown.Sounless youre savvy with research capacity where in hell can you go? Kenya, Indonesia, even Brazil or China? I dont think y

8、ou want to do that. These are macro plays where you have to be comfortable with their corporate accounting, currency and the prevailing party in power. Then you analyze specific properties.The American stock market, compared with 20 European bourses, using Value Lines arithmetic index, shows glaring

9、 outperformance. Let Europe (and England) wallow in deflationary fiscal constructs. GDP goes nowhere and unemployment, particularly for high school graduates holds at a dismal 20 percent or more.When I enter a country with high-teens joblessness, I take off my watch and my countess sheds earrings, b

10、racelets and her necklace. Ive learned this the hard way in Sicily, even Naples.Lets face the facts! You aint got nowhere to go. Might as well surf the top 25 names in the S&P 500 Index. Google, Exxon Mobil, Microsoft, General Electric, Apple et al. Look at all major sectors in the index and decide

11、whether they are likely to prosper in a tepid business cycle. Assume interest rates remain low with inflation minimal. Pent-up demand for housing and autos keeps us humming.Can you deal with ass-biting issues of sequestration, higher taxes and corporate boardrooms playing it so conservatively in ter

12、ms of capacity expansion? If you pass on this can of worms, take a good look at pharmaceuticals and other sectors pretty much immune to politics, taxes and the business cycle.I hold major overweights in biotech houses like Gilead Sciences, Celgene and Biogen Idec. Not only are earnings prospectively

13、 explosive, but patent protection on major drugs extends out for most of this decade. Analysts diverge on how to value these properties. Many use a dividend discount model, but I prefer the straight price-earnings ratio yardstick. My assumption is enormous free cash flow accumulation is reinvested a

14、t a high rate of return plus aggressive share buybacks.The Feds analysis of capital adequacy among big banks actually surprised me. I didnt realize Bank of America held the wherewithal for a $5 billion buyback as well as calling its preferred stock at a $5.2 billion face number. Obviously, theyll is

15、sue a new preferred with a 5.5 percent dividend, callable in five years. The $5 billion stock buyback suggests I worried excessively about their litigation reserves for Countrywide Financials mufti-pufti in the mortgage market.The noise over JPMorgan Chases Whale gambit is old noise. How many times

16、do you discount such a trading faux pas? Morgans board raised the quarterly dividend by nearly 30 percent, joining the 3 percent yield club among big cap properties. I see JPM going into 2014 with dividend paying capacity over 30 percent higher, at least $2 a share, a 4 percent yield, plus additiona

17、l share buybacks. This stock has $60 a share written all over it. Just be patient.Citigroups token buyback of $1.2 billion is meaningless. Maybe, theyre waiting to eliminate all their Bad Bank assets. Hopefully, theyre reserved for the worst. Where Im going with all this is anyone getting his feet w

18、et after years of abstinence should look at the 25 to 50 largest properties in the S&P 500 Index. Ragamuffins need not outperform. Ive red penciled stocks like Microsoft, Exxon Mobil and Apple. GE and IBM know how to play the “be kind to shareholders”game with the banks now quick studies.Viable stoc

19、ks with rising dividends, just as long as they yield 3 percent or more going in, are bond surrogates for AAA corporates, 10-year, even 30-year Treasuries which yield 2.7 percent, 2 percent and 3.2 percent, respectively. Who woulda believed this construct 5 years ago? Chances are no change for the fo

20、reseeable future (2 years).Dont overlook pharmaceuticals, many yielding 3.5 percent and likely to increase payout ratios while they work off patent expirations on blockbuster drugs. Pfizer, which is an active financial engineer, performs admirably. Ive added Eli Lilly and Johnson & Johnson to my lis

21、t of low pressure plays.Sky high multiple plays like VMware and S which have moved contrapuntally, leave me cold. VMware is a big flop while S is up 100 percent over 12 months. My compromise rests in mid-teens growthies like Google, EMC and Qualcomm. GARP (growth at a reasonable price) is a viable g

22、ambit.In short, macro forces favor equities. The Fed has restored family wealth to its pre- recession high-water mark and individual and institutional debt-equity ratios rest too heavy in the fixed income sector.The wind is at our back, but tough to put a number on its velocity. I like this kind of

23、conundrum rather than Citigroup trading at a buck a share, saved at the bell by the FRB and U.S. Treasury. What was Bank of America thinking giving Buffett 7 percent of the company in warrants exercisable around seven bucks with a preferred stock yielding 6 percent?If the market takes out its 2007 high (my call), consider it a rearview mirror event. The pressing issue is can earning power compound at 6 percent of better? My answer is its a layup, maybe a slam dunk. Lower taxes, minimal interest expense and labor still getting a declining share of GDP spell the difference.